Holding the middle ground

Historically distributors form the middle-born children of the channel family. Distributors act as the medium between aggressive vendors and demanding resellers. They are neither creating new offerings nor crossing the finish line.

However, that is a dated view of a shifting distributor landscape. Distributors these days are far from mere logistical operations. They innovate, train, support and have closer ties and involvement with all stages of the channel’s flow.

CRN gathered insight from all three channel levels, to understand the challenges distributors face, the expectations from resellers and the demands from vendors.

Distributors’ views
“Distribution is not the simple business people think it is,” said Stead Denton, owner of The IPL Group, which works with OKI, Avaya, Alcatel and Siemens. “How many successfully distributors are there in Australia? Not many.

“People seem to think distribution is a less sophisticated business than system integration, but I tend to disagree. The amount of people in distribution who have made money are quite a few and survived. Because you are a treasury, you’re a dealer’s inventory and his bank. That means you as a distributor need to be quite sophisticated in how you manage your treasury. You have to be an engineering company because you need to support everything you sell and what we sell is quite broad. To manage all that, you need to have quite sophisticated systems.”

Antony Sheen, managing director of Altech, said: “In the past couple of years there were quite a lot of mergers and acquisitions, so after that the (distribution) market became more healthy than before. Many distributors don’t see much profit in IT anymore and they converted their business to other products.

“Our company’s biggest challenge is to find more professional staff.

“Profit in IT has decreased in the past several years – so we cannot afford very high salaries for our employees. People started moving to other industries chasing better packages.”

Sheen said changes that the distribution market has witnessed include a number of mergers and acquisitions, vendors with poor quality products disappearing from the market, end-users starting to look for quality products as they become more affordable, new technologies such as VoIP, IP TV and surveillance emerging, and notebooks catching up with the numbers of desktops sold.

Peter Masters, director of marketing and operations at Express Data, said: “The mood amongst Express Data’s resellers is very positive. We have had another strong June and we expect that the months to follow will also be solid. As always, margin pressure can present challenges, but generally our partners see the value that Express Data offers and we have been able to work with them to really continue growing.”

Masters said consolidation has played a key difference in the changing distributor landscape, not just amongst distributors, but with resellers and vendors, and this has a flow-on effect with how distributors operate.

“Express Data has been able to navigate through these changes because we have been fortunate in partnering with the right companies so that when this has happened we still have maintained excellent relationships with whichever new entity exists,” he said. “Express Data is successful because it has proven its agility in adapting to changes in the market.”

Masters said those businesses that will be successful will be the ones that work with their customers. “Because of the size of the local market, broad-based distribution is so cut-throat, but if you offer real value, you can succeed.

“However, adding value is a lot easier said than done. A lot of distributors say they are value-add but in reality it’s often just a marketing tagline,” he added.

Paulo Mpliokas, NSW state sales manager at Cellnet, said: “The distribution market has been as busy as it has been for a while and the challenge is knowing where to fit in. Distributors are doing different things, such as adding value or just box-shifting, and that has always been the challenge in the distribution market.”

Mpliokas said for Cellnet it is all about keeping things simple and flexible, as some businesses run the risk of having a business model that does not fit in with some companies’ business processes.

“Distributors can be called a bank and a warehouse, but you could also be called an aggregator of skills with certified sales and technical people. For resellers we are all of those and for vendors we are a route to market,” added Mpliokas. “The distribution market has always been up for more consolidation, with distributors coming and going as they can’t work their model out and they get acquired by a larger player.

You will see large, almost supermarket-type distributors alongside other niche distributors with a specific focus.”

Concurring with Mpliokas’ views, Michael Costigan, national marketing director at Avnet Partner Solutions, said: “Get big, get niche or get out of the market. The distribution market in Australia has been consolidating for a number of years. It has been mirroring the markets in the US and Europe.”

Costigan said the Australian market tends to be six to 12 months behind the US and the main difference is that Australian resellers are more vocal as they operate in an open distribution market with different partner options.

“Resellers want to enter into a partnership with their distributor, especially the larger players. They want lines of credit, sales and technical support and to work with us on marketing activity,” he said.

Costigan said partners often work in one-to-one marketing to generate new business and to target existing customers, too.

“A lot of our business partners serve the mid-market and they want a solution to solve a problem. We are a value-added distributor and have seen the rise of solution-orientated VARs, moreso over the past 12 months.”

Costigan said Avnet has a targeted line card in Australia, covering vendors including IBM and HP, alongside Linux, storage practice, network appliance and networking practice.

“Vendor demands vary, but generally they look to us to create channels to market for them, through new partners or by extending into new geographical markets,” added Costigan. “Business partners are expanding overseas and looking for distributors with a global footprint.”

Scott Frew, chief executive officer of Distribution Central, said his business focuses on value-add opportunities.“We are completely different to most distributors in the market, who concentrate on stock and credit.

We offer significant value-add including pre- and post-sales engineers,” he claimed.

Frew said the reseller community has welcomed value-add offered by distributors and has enjoyed a buoyant spell during a booming economy.

“We are providing new services which vendors have never had before. One of the biggest services is reporting. Also some of our smaller vendors do not have a channel program in place, so we will sit down with them and create a program from our vast experience in the channel.”

Frew added he does not feel the distribution market as a whole will transcend towards a more value-add model, as many players are stuck in their ways.
Hugo Ortega, principal of tablet PC distributor Tegatech Australia said considering a niche approach to distribution could be a useful tool to succeeding in the market.

“Distribution is no different to any other channel in the IT sector. At present we are experiencing massive growth which I attribute to strategic partnerships and vertical market orientation,” he said. “If I were a distributor or a reseller looking to improve the health of their business, I would think about niche opportunities.”

Ortega claimed the lack of relationship with their reseller channel is killing distributors off.

“Even the giants of the industry can suffer from this and potentially may experience a decline in their numbers over the next few years. The challenge is to think big but remember to keep firm contact with the small of the industry, too,” he said. “In the past few years, competition between the distributors has become heated. So much so that resellers are willing to play one distributor against another.”

Ortega said this transition has caused competition in pricing, service and ultimately after-sales support. “The changes are good ones as I believe distributors have been caught napping and resellers won’t put up with it.”
“Distributors can be fickle, as too can the market itself. Whether distributors attempt to specialise or diversify their portfolio of products, or market sectors they reach into, ultimately it will be the level of support that they offer which will ensure them riches or losses,” added Ortega.

Resellers’ two cents
Reseller Integ Group’s main distributors are Firewall Systems, LAN Systems, Avnet, Ingram Micro and ABTC. The firm’s chief executive officer, Ian Poole, outlined its expectation from a distribution partner including: products are in stock; response and order turnaround times are speedy; logistics, transport and RMA processes are efficient; products are available locally in capital cities; plus pricing, marketing and training support.

“Specialist distributors are emerging who give value to resellers and integrators by way of their deep knowledge of the specific market and its products, for example Firewall Systems in the security space. These distributors add strength to the ‘vendor’ pre-sales support teams,” added Poole.

Jol Alexander, project support and purchasing officer at Quick Knowledge, said: “I use Altech more than the other (distributors) simply due to ease of use. I’ll call them or email them, my order is placed, and the part arrives.
“I’ve called them before at 4.55pm and placed an urgent order for three items of stock. They were waiting for me when I arrived at work at 8.55am. It is support like that the large companies simply do not have.”

Alexander said he also uses Cellnet because the company treats resellers like a partner, where the large guys are often unwelcoming if orders are not for more than $10,000 in stock.

“MMT is also a favourite of mine, the guys are very knowledgeable about their products and often go above and beyond,” added Alexander.

Mathew Dickerson, senior network consultant at Axxis Technology, said: “A good distributor all comes down to the relationship you have with the distributor’s people. So no matter how big they are, it is about how well they know you and how well they know your business.”

Dickerson said knowledge of a reseller business is important so the distributor can identify opportunities for their partners and contact them at the relevant time.

“I think the ones (distributors) who do this well are rewarded with customer loyalty, rather than just focusing on their final numbers. Distributors who adopt this approach would actually get better numbers through a closer relationship with resellers,” he said.

Dickerson said Axxis Technology primarily uses Ingram Micro as its distributor as it offers the close relationship which Dickerson recommends.

“A little while ago we had never had a rep from a major distributor knock on our door, until someone from Ingram visited us. MMT also does this well as they know who we are and how our businesses runs,” added Dickerson.

Vendor demands
George Hladilo, director of channel sales at CA, said: “We work through Ingram and Express Data and they have the knowledge of storage and threat management. We look for a broadline distributor which can reach a number of resellers partners and touch a wide range of customers.”

Hladilo added distributors also provide more than just reach, with marketing resources, promotion aspects, sales administration and logistics also provided.
Graeme Reardon, regional director for A/NZ at Linksys, said the networking vendor works with Ingram Micro, LAN Systems, Express Data and MMT.

“From our distributors the number one aspect we look for is stock holding, as we do not have local Linksys warehouses. Distributors also manage these stock levels appropriately and hold the relevant levels which we require,” he said.

Reardon said Linksys also uses its distributors to work alongside its service provider partners who may be looking for customisation and a level of differentiation, while some of Linksys’ distribution partners are also required to supply service providers’ customers directly.

“The distribution market is more stable these days, as a couple of years ago we saw the merger of Ingram and TechPac which left questions around the smaller distribution players, but such consolidation has since slowed in the market,” added Reardon.

Jordan Reizes, marketing director for A/NZ at EMC said the storage vendor prefers a sole distribution approach across Australia and New Zealand, through LAN Systems only.

“If you looked at EMC as a business in the past it worked more directly with channel partners, but three years ago we looked to distribution and appointed LAN Systems. We wanted a value-add partner and are focused on getting our right right, rather than just appointing more distributors,” he said.

Reizes said what EMC offers is still very much a solutions sell, so a distributor has to value-add and offer a level of technical resource alongside assisting resellers.

“We look to our distributor to enable our partners and provide a platform for resellers to get trained and accredited. A distributor gives greater reach and scale while providing additional contacts and solutions,” he said.

Traditionally, a lot of the business in storage and information infrastructure has been done direct and in the high end of the market, according to Reizes.

“What we have seen due to a drop in price in storage is more availability to more customers and that has created more opportunities for the channel, opening the door to resellers and distributors,” added Reizes.

“The value-add component will remain important with the distributor going to market with vendors offering a complete solution.”

Changing models
Vendors are often chopping and changing their distribution models, either adding distributors to seek more coverage, or dropping partners to provide more focus. Only last month, security vendor Trend Micro reshuffled its local set-up, choosing to work with only Ingram Micro and itX Group and ceasing its relationship with LAN Systems.

“We wanted two distributors rather than three,” said Dave Patnaik, director of small and medium business in Australia and New Zealand for Trend Micro. “Based on resellers feedback, we opened up our channel to Ingram and itX so they could sell our SMB and enterprise offerings.”

Patnaik added Trend’s new distribution model will make it simpler for resellers, with one point of contact and also easier from an operations point of view.

Ingram and itX were not complaining with Greg Newham, general manager of distribution at the itX Group, commenting: “We have been selling and supporting Trend Micro products and services for the past eight years and this new distribution model will help us exceed our future goals more efficiently and effectively.”

John Walters, director of the Commercial and Solutions Group at Ingram, added: “We are looking forward to being part of the company’s new distribution model.”

Future of distribution
In such an obviously diverse and changing distribution market, what will the future hold for Australia’s distribution players?

“In the future I think we will see distributors entering emerging markets such as consumer electronics, telecommunication, and some vertical markets,” said Sheen at Altech. “I think we will see less distributors in the market within
the next few years, but the ones that will stay on the market will be offering a wide range of better quality products.”

Masters from Express Data, said: “We are working with vendors to develop the channel; to invest in our reseller partners’ businesses. ‘Software as a service’ is certainly something that has the potential to revolutionise and we are already looking at this as a viable business model.

“Express Data will always be a value-added distributor, but this value will and always has been fluid because it depends on where our customers are saying they need it. We work with them and talk to them openly and this helps to define our strategy,” added Masters.

Ortega at Tegatech said: “Web- based services are playing a more important role than ever. Clever distributors will take advantage of this and look at rolling out more user-friendly buying experiences for their channel of resellers. We have already begun refining some SMS tools, Windows Mobile tools, UMPC tools, and more.”

The general consensus from the three parties is that there is no general consensus. Some believe a large broad base and logistics operation is what makes a distributor tick, some believe a niche focus is needed, while others support a value-add approach. The bottom line is there is no typical distributor. The IT market is a fast-moving industry, and to keep pace it needs a diverse range of suppliers. Not all distributors will develop quick enough, while others may back the wrong sector or strategy, but as things stand there is still a place for players of all shapes and sizes in Australia’s distributor landscape.

“Adding value is a lot easier said than done.”

“Distributors can be fickle as too can be the market itself.”

“Get big, get niche or get out of the market.”

“The distribution market is more stable these days.”